If a Student's Parents Do Not Claim Him as a Dependent on their Income Tax Returns, Will the Student Get More Financial Aid?

How beneficial is it to have our college attending son file his
taxes on his own versus us claiming him as a dependent? Does it make
a huge difference in the amount of aid and/or scholarships he would
receive?
— Lois H.

Whether or not a student is claimed as an exemption on his parents’
federal income tax returns has no impact on the student’s eligibility
for financial aid and scholarships. The student will not get more
financial aid.

Although the word “dependent” is used on both the federal income tax
returns and the Free Application for Federal Student Aid (FAFSA), one
has nothing to do with the other. The word “dependent” for
federal student aid purposes is defined by the Higher Education Act of
1965, while the definition used for federal income tax purposes is
based on the Internal Revenue Code of 1986.

The statutory definition of an independent student for federal student
aid purposes appears in section 480(d) of the Higher Education Act of
1965 [20 USC 1087vv(d)]. Any student who does not satisfy the criteria
for independent student status is considered to be a dependent
student, even if the student is financially self-sufficient, does not
live with his parents and claims himself as an exemption on his own
federal income tax return.

The FAFSA currently includes thirteen questions that are used to
determine whether the student satisfies the statutory requirements to
be considered an independent student. These criteria include whether
the student is over age 24, is married, has dependents other than a
spouse, is in graduate school or is a veteran. (A complete list of
the criteria for independent student status appears at the end of this
column.)

All other students are considered to be dependent.

None of these criteria are based on whether the student was claimed as
an exemption on their parents’ federal income tax returns. Independent
student status has not been based on whether the student is claimed as
an exemption for two decades. The old “bright line test”, which was
prone to abuse, was repealed by the Higher Education Amendments of
1992 (P.L. 102-325) effective starting with the 1993-94 award year on
July 1, 1993.

The current set of rules concerning independent student status were
designed to prevent the student’s parents from manipulating the
student’s status to qualify for more financial aid. The federal
government considers the student and the student’s parents as having
the primary responsibility to pay for the student’s college
education. The federal government provides financial aid only to the
extent that the family is unable to pay for college.